Module 01: Framework for Analysis and Valuation

Question 1

Process of extracting information from financial statements to better understand a company’s current and future performance and financial condition.

Answer 1

Financial Statement Analysis

Question 2

Process of drawing on the results of financial statement analysis to estimate a company’s worth.

Answer 2

Valuation

Question 3

Two types of claims on the company = company value.

Answer 3

1. Equity Market = Owner Claims

2. Debt Market = Nonowner Claims

Question 4

Joint process of scrutinizing a company’s financial statements and valuing its equity and debt.

Answer 4

Financial Statement Analysis and Valuation

Question 5

List the 4 key steps in financial statement analysis and valuation.

Answer 5

1. Understanding the Business Environment and Accounting Information
2. Adjusting and Assessing Financial Information and Accounting Information
3. Forecasting Financial Information
4. Using Information for Valuation

Question 6

List 3 main users of financial statements.

Answer 6

1. Investors and Equity Analysts
2. Lenders and Credit Analysts
3. Company Managers

Question 7

Business activities occur within environments characterized by business forces such as . . .

Answer 7

Market Conditions, Competition, Regulations

Question 8

A business strategy that reflects how a company plans to achieve goals and objectives.

Answer 8

Strategic Plan

Question 9

Past financial statements vs. Current financial statements in the planning process.

Answer 9

Past = Inputs into Planning

Current = Reflection of Performance of Plan

Question 10

List 3 types of ongoing business activities at every firm.

Answer 10

1. Operating
2. Investing
3. Financing

Question 11

Business activity which examples include:

Hiring and training of employees, manufacturing of products, selling product, customer support.

Answer 11

Operating Activities

Question 12

Business activity which examples include:

Acquiring land, buildings and equipment. Product expansion, company acquisition.

Answer 12

Investing Activities

Question 13

Business activity which examples include:

Raising cash by selling stock or borrowing.

Answer 13

Financing Activities

Question 14

Identify the users of financial statement information.

Answer 14

1. Managers and Employees
2. Investment Analysts and Information Intermediaries
3. Creditors and Suppliers
4. Stockholders and Directors
5. Customers and Strategic Partners
6. Regulators and Tax Agencies
7. Voters and their Representatives

Question 15

Public companies are required to file which forms under SEC regulations.

Answer 15

Form 10-K

Form 10-Q

Question 16

Audited annual report that includes the four financial statements with explanatory notes and the management’s discussion and analysis (MD&A).

Answer 16

Form 10-K

Question 17

Unaudited quarterly report that includes summary versions of the four financial statements and limited additional disclosures.

Answer 17

Form 10-Q

Question 18

What are the benefits of disclosure?

Answer 18

Accounting information extends to a company’s capital, labor, input, and out market. Opportunity to be more competitive.

Question 19

What are the costs of disclosure?

Answer 19

1. Preparation and Dissemination Costs
2. Competitive Disadvantages
3. Litigation Risk
4. Political Costs

Question 20

SEC regulation that requires material nonpublic information be made public simultaneously (promptly in the case of non-intentional disclosure).

Answer 20

Regulation Fair Disclosure